Mark Dayton's Budget: More Taxes, More Spending, a Less Competitive Minnesota

Today Minnesota Gov. Mark Dayton released his two-year budget proposal for FY 2014-15. As expected, with Minnesota's first all-Democrat state government since 1990, the plan includes billions in higher taxes and more spending.

The governor wants to take the state's top income tax rate, which kicks in at just $150,000 of income, to a stratospheric 9.85 percent. He also pushes for tax increases he called unfair and regressive just two years ago: higher levies on tobacco, clothing, and services.

ATR President Grover Norquist wrote a letter in opposition to the governor's tax-and-spend budget today (PDF copy here):

January 22, 2013

Minnesota House
Minnesota Senate

Dear Legislator,

I write in strong opposition to Gov. Mark Dayton’s proposed FY 2014-15 budget. The budget would increase both taxes and spending, erode Minnesota’s competitiveness in the region, and implement a number of unfairly regressive tax increases that the governor strongly opposed only two years ago. Minnesota has been on a relatively stable path over the past two years, with revenues steadily growing and unemployment falling. I urge you to avoid these massive and unnecessary tax hikes, which would stymie the state’s recent growth and stability and put it at a competitive disadvantage with nearby states.

The personal income tax increase is a massive step in the wrong direction. Throughout the Midwest, governors and state legislatures are reducing income tax burdens. Just this year, Kansas, Nebraska, and Oklahoma have proposed full phaseouts of their income taxes, while Wisconsin, Indiana, and Ohio are pushing significant tax cuts. Minnesota’s income tax burden is already higher than all of these states; to go to a 9.85 percent rate that kicks in at $150,000 of income will put the state at a serious economic disadvantage.

And state policymaking should not ignore recent changes at the federal level. Congress recently passed a top income tax rate increase, which will be coupled with any tax hike at the state level. This increases the incentive for taxpayers and small businesses to move to lower-tax jurisdictions to avoid surrendering more than half their income to the government.

Also important is the governor’s recent reversal on regressive taxes. This budget includes a significant increase in the cigarette tax, as well as an expansion of the sales tax base. On the campaign trail in 2010, Gov. Dayton explicitly opposed these tax hikes. With respect to the cigarette tax, he said, “You raise the price of a pack of cigarettes…that’s money out of the pockets of working people and poorer people, and that means kids don’t have as much to eat or have the same quality of food.” And on sales tax expansion, the governor remarked, “Extending the sales tax to clothing…is regressive. Extending the sales tax to all consumer services…I mean, taxing all that and turning those service businesses as tax collectors for the state is really a hornet’s nest…it’s more of a regressive tax.”

Now it seems Gov. Dayton is willing to push for an anti-competitive tax increase on the middle class and small business community in tandem with a collection of regressive tax hikes on middle- and lower-income families. This would be a major mistake for Minnesota.

What is most problematic about the governor’s plan is that he appears to be operating in a political vacuum. He ignores the tax hikes coming down from Washington. He ignores the fact that neighboring states are becoming more competitive by cutting taxes and regulations. And he ignores the fact that Minnesota has been on pretty sound economic footing to this point, which would no longer be the case after a round of massive tax increases and higher spending.

Minnesota’s revenues have climbed and its unemployment plummeted after two years of a stable tax code. You shouldn’t throw that in flux. I urge you to stand up for Minnesota taxpayers and reject each of Gov. Dayton’s tax hikes.

If you have any questions, please contact Josh Culling, state affairs manager, at jculling@atr.org or 202.785.0266.